Thursday 24 January 2008

Rogue Trader II - 4 times Bigger

4 times Barings Bank

There are many questions to ask because I still cannot believe that 12 years after the collapse of Barings Bank, checks and balances in banks cannot detect rouge trading.

What makes it all the more interesting is that this person was responsible for betting on the markets’ future performance at Société Générale in France.

Basically, beyond the sophisticated and varied techniques that bank employees might have at their disposal to capture the magic of the market or fall foul of the same; one can just say it is a gambler’s den.

I have got questions

  • How does a 31-year old on less than €100,000 including bonuses generate liabilities of over €4.9 bn ($7.1 bn)?
  • Who was supervising this chap that he was able to rake in these losses?
  • How does the bank monitor the possibilities of fraud from personnel who have moved between departments that give them the ability to work the system?
  • If the trader had bet right and made a killing of enormous profits for the bank, would it have been a fraud and exposed?
  • If it is possible for such a person with 7-years experience to command such market influence, what else is going on with more sophisticated dabblers?
  • How long has this been going on and would there be another revelation and this already with the losses incurred for the sub-prime exposures?
  • Can you really trust banks to monitor compliance, security and due process for financial transactions considering this is the 2nd largest bank in France?

Someone’s gonna get stung again

There are more questions, but it is mind-boggling that this is 4 times the amount that got Baring Bank sold to ING Bank for the nominal GBP 1.

Now this would not break Société Générale Bank because they already paid off this loss and they intend to raise €5.5 bn to offset these losses.

Some fool and his money would soon be parted to allow another smarter trader to do a Texas Hold ‘Em with the cash and melt into thin air.

Unlike the gambler in Kenny Rogers’ in the chorus of the song The Gambler, this one did not break even, but he knew when to walk away and he has definitely run – they don’t know where he is.

But like any sequel, Rogue Trader II is bigger, better and leaving many with sleepless nights already.

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